Assume the multiplier is 5 and that the total crowding-out effect is $20 billion.An increase in government purchases of $10 billion when the multiplier is 5 will shift the aggregate demand curve
A)right $150 billion.
B)right $70 billion.
C)right $30 billion.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The initial increase in government purchases is $10 billion, and with a multiplier of 5, the total potential increase in aggregate demand is $50 billion ($10 billion x 5). However, the crowding-out effect reduces this by $20 billion, resulting in a net shift of $30 billion to the right.

Assume the Multiplier Is 5 and That the Total Crowding-Out